Baucus Plans Tax Code Overhaul

Senate Finance Committee chairman Max Baucus, D-Mont., is laying out goals for tax reform as the expiration of the current tax rates looms at the end of the year.

In a speech Monday at the Bipartisan Policy Center in Washington, D.C., the head of the Senate committee charged with tax policy talked about the need to rid the Tax Code of tax breaks and tax complexity.

“The need to overhaul the U.S. tax code seems obvious,” he said. “Today, the code is certainly not beautiful. Instead, it reminds me of Hydra, the mythical Greek beast with hundreds of heads. Each time you cut one off, two more grow back. Like Hydra, our tax code is growing out of control. Since 1986, Congress has made 15,000 changes to the tax code."

Baucus pointed to the growing budget deficit and the need to raise revenue. “We need to get our fiscal house in order,” he said. “America’s deficits and debt are unsustainable. Today the debt-to-GDP ratio is 73 percent, the highest it has been since World War II. Deficits and debt are not just a spending problem. Revenues as a share of GDP over the past few years are the lowest they have been since World War II. We simply don’t raise enough revenue. Reasonable people disagree about the timeline. But the reality is we're on a dangerous path. If we don’t act, it could lead towards fiscal crisis like some European countries. Any tax reform plan must be developed with a sound budget in mind that reduces deficits and debt. But the deficit is not our only hurdle—not by a long shot.”

Republicans and Democrats in Congress disagree about how to deal with the budget deficit, with most Republicans pushing for spending cuts and steadfastly opposing any tax increases, while many Democrats and the Obama administration favor a combination of spending cuts and the reduction of tax breaks, particularly for the wealthy. However, many Republican leaders have acknowledged the need to eliminate tax loopholes. But particular industries usually lobby Congress heavily to preserve any loopholes whenever they are specified. Some congressional leaders are now talking about putting in place a mechanism to speed tax reform through a fast-track process. Baucus said he intends to introduce a tax reform plan of his own, although he declined to provide the specifics.

“Since the last major tax reform in 1986, the world has changed drastically,” he said. “Our tax code hasn’t kept up, and now it’s acting as a brake on our economy when we need to move at full speed. It’s time we had a tax code for the 21st century.”

His goals for tax reform include jobs from broad-based growth, competitiveness, innovation and opportunity. Baucus said that every tax provision needs to prove it has a tangible benefit to the economy or society. "If not, it doesn't belong in the tax code," he added. He pointed to the 132 expiring tax provisions now in the tax code, compared to only 14 after the Tax Reform Act of 1986.

"We need to take a hard look at each and every expiring provision to decide which to make permanent and which to eliminate," said Baucus.

He noted that while other countries have lowered their tax rates to attract businesses and shifted to a territorial tax system to keep companies from moving overseas, the U.S. has not yet done so. Other countries also have tougher rules about shifting profits to tax havens.

Baucus said the tax code needs to foster innovation in fields like high-tech manufacturing, intellectual property, technology research and energy. He also believes that tax breaks for education should focus on those who need the most help.

"Many tax benefits, including for education, currently give the most help to those who already have the most opportunities," he pointed out. "Tax reform should refocus these benefits to help those who started out with fewer opportunities. We should ensure more students get more education."